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The Impact of the Americans with Disabilities Act on the Entry and Exit of Retail Firms

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  • Prieger, James E.

Abstract

Congress enacted The Americans with Disabilities Act of 1990 over the protests of small business advocates who claimed that the ADA would trigger a wave of bankruptcies. Although the profitability of firms may suffer from the costs of ADA compliance, no systematic review of the evidence has been done. This paper seeks to determine if the ADA had a measurable impact on both the entry of new firms and the failure rate (exit) of existing firms. The empirical results are consistent with the hypothesis that the ADA negatively impacted the retail industry. There were fewer retail firms after the ADA was passed, and the drop was larger in states in which the ADA was more of a legal innovation, and in states that had more disabled people, more ADA-related lawsuits, and more ADA-related labor complaints. There is also evidence that employment and access discrimination suits imposed real costs on retail stores, encouraging exit. However, the exit of incumbents was partially offset by new entry. Overall, the number of food stores decreased 2-13% after the ADA came into effect, and at least a 1.4-2.3% decrease in the number of smaller stores may be attributed directly to the ADA, net of trends affecting larger firms. Two subsidiary contributions of the paper are an inquiry into the response of industry dynamics to increases in costs, and an econometric model to back out entry and exit rates from establishment count data. The theoretical model of industry dynamics shows that increases in marginal and fixed costs may have interesting and non-obvious effects on entry and exit. The econometric model enables maximum likelihood estimation of unobserved entry and exit processes based on the observed establishment count data. Both models show promise for application to other questions in economics.

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Bibliographic Info

Paper provided by Regulation2point0 in its series Working paper with number 325.

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Date of creation: Nov 2004
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Handle: RePEc:reg:wpaper:325

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  1. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  2. Honjo, Yuji, 2000. "Business failure of new firms: an empirical analysis using a multiplicative hazards model," International Journal of Industrial Organization, Elsevier, vol. 18(4), pages 557-574, May.
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  5. Daron Acemoglu & Joshua Angrist, 1998. "Consequences of Employment Protection? The Case of the Americans with Disabilities Act," Working papers 98-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Edward J. Schumacher & Marjorie L. Baldwin, 2000. "The American with Disabilities Act and the Labor Market Experience of Workers with Disabilities: Evidence from the SIPP," Working Papers 0013, East Carolina University, Department of Economics.
  7. James A Schmitz & Thomas J Holmes, 1994. "On The Turnover of Business Firms and Business Managers," Working Papers 92-6, Center for Economic Studies, U.S. Census Bureau.
  8. Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-83, June.
  9. Prieger, James E, 2001. "Telecommunications Regulation and New Services: A Case Study at the State Level," Journal of Regulatory Economics, Springer, vol. 20(3), pages 285-305, November.
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  11. Thomas DeLeire, 2000. "The Wage and Employment Effects of the Americans with Disabilities Act," Journal of Human Resources, University of Wisconsin Press, vol. 35(4), pages 693-715.
  12. Timothy F. Bresnahan & Peter C. Reiss, 1987. "Do Entry Conditions Vary across Markets?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3), pages 833-882.
  13. James E. Prieger, 2002. "Regulation, Innovation, and the Introduction of New Telecommunications Services," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 704-715, November.
  14. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  15. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "Pattenrs Of Firm Entry And Exit In U.S. Manufacturing Industries," Papers 1-88-2, Pennsylvania State - Department of Economics.
  16. Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
  17. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-74, August.
  18. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 583-606, June.
  19. De Vany, Arthur & Frey, Gail, 1982. "Backlogs and the Value of Excess Capacity in the Steel Industry," American Economic Review, American Economic Association, vol. 72(3), pages 441-51, June.
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Cited by:
  1. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Do Employment Protections Reduce Productivity? Evidence from U.S. States," Harvard Business School Working Papers 07-048, Harvard Business School.
  2. James Prieger, 2007. "The Impact of Cost Changes on Industry Entry and Exit," Journal of Economics, Springer, vol. 91(3), pages 211-243, July.
  3. James E. Prieger, 2005. "The Impact of Cost Changes on Industry Dynamics," Working Papers 51, University of California, Davis, Department of Economics.

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